Cash Flow Management

Cash Flow Management is a process of managing the cash resources of the company. Meaning, the process of managing the cash inflow and cash outflow of the company in order to maintain adequate cash to meet the obligation of the company and general requirements of running your business. It is important to note that cash does not generate income on its own but rather an important enabler in generating income.

Cash is important in running the company and growing the business, namely, paying your employees, your suppliers and paying for the expansion of your business. If managed well, meaning the cash coming in is more than the cash going out and equally important the timing of the inflows versus the outflows, will lead to a preferred positive cash flow. The time between you paying your suppliers and you collecting cash from your customers is what will determine your negative or positive cash flow. Positive cash flow is important for any business, that is collecting more cash and sooner than you paying out.

Let us look at two ways of managing your cash flow; not limited to the two we are going to look at but it may be a good start.

Shorten Debtors Days

Collect cash from your customers (Cash inflows) in a short space of time after rendering a service or delivering the goods. One way of doing this is to communicate your payment terms to your customers in advance and the importance of keeping to them, preferably COD (cash on delivery), seven days payment, and fourteen days payment and so on. Also ensure that your invoices together with supporting documents follow soon (preferably on the day you deliver) after work has been completed to minimise any delays in processing your payment.

Lengthen Your Creditors Days

Establish a good relationship with your suppliers by building a good payment reputation. This will allow you to get favorable payment terms, meaning you can buy on account and payment in thirty days or longer. This is good for cash flow purposes as it allow your company to use the supplier’s resources to generate more income for your company. Example, you buy your goods on thirty days’ term from your supplier but you sell them on strict fourteen days term to your customers. Therefore, you receive twice the income (cash inflows) more that the payment (cash outflows) you are going to make. Therefore a positive cash flow at the end of the month for your company.



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